Toshiba Vows to Keep PC, TV Businesses

By Daisuke Wakabayashi, Yoshio Takahashi

TOKYO—Toshiba Corp.’s new chief executive said he won’t pull the plug on the company’s unprofitable television and personal computer operations, shunning the “easy option” of exiting cutthroat competition for a chance to reclaim its former prominence in the businesses.

Hisao Tanaka, who took over as president and CEO of the sprawling Japanese electronics conglomerate in June, said Toshiba doesn’t need to fall in line with peers who have pulled out of struggling businesses to focus on more promising ones. Instead of trying to narrow the focus of the electronics giant, the company should celebrate its size and take advantage of it, Mr. Tanaka said in an interview Wednesday.

“There’s a perception that a conglomerate with a lot of businesses may cancel out the benefits [of size],” said Mr. Tanaka, explaining the so-called conglomerate discount. “I think we can use a lot of the technologies that we as a conglomerate have by integrating or merging them and turn the discount into a premium.”

Once famous for their soup-to-nuts array of businesses, many of Japan’s electronics conglomerates are slimming down after incurring massive losses in recent years. A week ago, NEC Corp. announced plans to exit the smartphone business after struggling to gain a footing in the industry. Panasonic Corp. has said it would exit or sell businesses that aren’t profitable, while Hitachi Ltd. spun off its mobile phone, hard-disk drive and flat-panel TV business in the past few years. For its part, Toshiba sold its mobile-phone operations to Fujitsu Ltd. in 2010.

Lifted by its flash-memory chip and power equipment businesses, Toshiba has been profitable for the last three fiscal years despite losses exceeding ¥50 billion ($512 million) at its television operations in each of the past two years.

The computer business is equally difficult. Toshiba was the first company to commercialize a notebook computer in 1985 and dominated the market in the mid- to late-1990s. As its position weakened, Toshiba wrestled with razor-thin profit margins in recent years amid unrelenting price competition in the PC industry. As smartphones and tablet computers encroach on PC demand, conditions at the business have worsened.

“People might say ‘get rid of the PC or TV business.’ It may be extreme to say this, but we can do that anytime—although I have no intention of doing so,” said Mr. Tanaka, a 40-year veteran of the company. “But if we did get rid of the TV and PC businesses, the next question would be ‘what’s next?’ That would turn Toshiba into a very unbalanced business structure.”

To slash costs at the TV and PC businesses, Toshiba announced last month that it will transfer 400 of its Japanese employees in those two divisions to its infrastructure business, while reducing the number of TV models it will produce and focusing on less price-sensitive corporate customers versus ordinary consumers. The Toshiba chief said he aims to return the TV, PC, and home appliance businesses to profit in the second half of its fiscal year to March 2014.

Mr. Tanaka, who spent the bulk of his career working in procurement, laid out his three-year business plan on Wednesday. He plans to make health care one of the company’s three pillar businesses along with power generation and semiconductors. Toshiba’s goal is to achieve an operating profit of ¥400 billion on sales of ¥7 trillion in the year to March 2016, compared with the ¥194.3 billion operating profit and sales of ¥5.8 trillion it posted last fiscal year.

Mr. Tanaka said he believes it is possible for Toshiba to return to its former glory as the leader of the laptop market. In addition, he sees TVs and computers as an important part of creating what he calls “smart communities”—infusing computing power and technology into all aspects of society including health care, transportation infrastructure, power generation and energy management.

Toshiba’s sprawling structure enables it to balance out losses at one business with profits from another. This allows it to stick with businesses during the downturns, said Mr. Tanaka, citing how Toshiba offset losses at its chip business in the 1990s with hefty profits from its PC business.

“This is probably typical of Japanese management style. American companies easily shed [struggling] businesses and keep the good ones to raise their corporate value and stock prices. That’s probably the American style but Japanese management is not like that,” said Mr. Tanaka.

“Quitting is the easy option and it’s more difficult to stay with it because you have to keep coming up with new ideas. But I think we can still do that.”